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December 8, 2008

February 1 was a huge day for Yahoo!. It had recently reinstalled Jerry Yang, its shares were dipping below $20, and Jerry Yang had just announced cuts of 1000 people.

And then the incredible happened. Microsoft opened a game with an offer of cash and shares valuing Yahoo! at US$44 billion. Roughly $33 per share, a $14 per share premium on the days closing.

The drivers were obvious. A bulwark against the ever growing infleunce and market domination of Google. Something to curb their influence while at the same time giving Microsoft greater shares of online advertising, and a greater prescence for the looming battle for online domination.

It was yet another shareholders dream. The two companies could do far better than either one by themselves, and Yahoo! was being offered a premium nonetheless.

Shares closed at $28 on the day of the offer as arbitrage players took stakes in the game.

But Yang faltered. He didn't trust Microsoft. He saw them as the evil empire who fought anti-trust battles against the US government. Th company who had breached laws with uncompetitive behavior.

He didn't trust them with his company and he didn't believe that they were the best value option for his shareholders. His reply "Microsoft's proposal substantially undervalues Yahoo."

He began defensive plays. He talks up the future, he starts to do a deal with Google for ad sharing, and he starts to talk with Microsoft about smaller acquisitions.

By November 5 it is all well and truly over.

Carl Icahn is on the board agitating for change with two seats that Yahoo! has granted him. Microsoft is no longer interested, not even in a smaller slice. T Boone Pickens has dumped 10,000,000 shares. The Google deal is dead. Yahoo! has had a decline of 60% in revenues and their share price is at US$12.

Jerry Yang will announce his departure as Yahoo! CEO on November 17.

By November 30 rumors abound that Microsoft will bid $20 billion for what's left.

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